Lessons from Malaysia

by Madan Lamsal from Kuala Lumpur

Till mid-nineties it was Singapore that used to be referred as an ideal case of fast economic development worth emulating for Nepal. Now that island country’s record seems far beyond the reach of Nepal. The comments are frequently heard that it would be more appropriate for Nepal to follow the path chartered by Malaysia, a northern neighbour of Singapore.

In their population size (about 23 million), both Nepal and Malaysia are equal, but the equality ends at that. Malaysia was able to reduce poverty incidence from 49.3 percent in 1970 to 8.9 percent in 1995, while in Nepal it still stands at around 40% (see tables in following pages for other comparisons).

Interestingly, the Malaysian revival started after a major racial riot in 1969 which led Malaysia to focus its economic policy on “growth with equity”. Nepal too is facing similar situation now as Malaysia faced in 1969. With the hope for a restoration of peace in the near future, the lessons from Malaysia will be indeed relevant for Nepal to formulate its policies in the post-conflict era.

Lessons

Maintain racial harmony and avoid religious fanaticism: As The Economist magazine once noted: “Nowhere else in the world can you find the dominant ethnic group (Malays, who make up about 53% of the population) living so amicably with such a big and economically powerful minority (Chinese, about 26%, not to mention the Indians, another 8%). In 1998, when the Asian crisis sent Malaysia’s national income crashing by almost 8%, and next door in Indonesia hundreds of Chinese were being lynched by jealous Indonesians, Malaysia’s Chinese went unscathed.

“Then there are the women. Many of those who swarm around the shops and eateries wear the tudong, the local version of the chador, tightly framing the face. But the tudong is often accompanied by figure-hugging jeans or T-shirts of which the religiously conservative would surely not approve. Nor is there any attempt to impose the tudong on non-Muslims, be they the local Chinese or foreigners. Pork and alcohol are freely available.”

Though some observers fear that in recent times, particularly after the 9/11 and US occupation of Afghanistan and Iraq, this sort of religious harmony might have been endangered, it has so far endured and formed the social basis for the Malaysian economic miracle.

“Malaysians are interested to invest in Nepal” Deepak Dhital Charge d'Affaires, Royal Embassy, Kaula Lumpur Deepak Dhital Charge d’Affaires, Royal Nepalese Embassy, Kuala Lumpur What efforts are being made to bring Malaysian investment in Nepal? Malaysia has invested in the African countries in the petroleum sector. Similarly, they have invested in Bangladesh, India and Sri Lanka in several other sectors, especially housing development. As Malaysia has invested in the neighboring countries of Nepal it is quite likely that Malaysian investment could be directed to Nepal as well. Talks are going on in this regard. There are chances that they might invest in sectors like road building, housing, hydropower, etc. However, for that not only the embassy but other parties as well have to show commitment and concern. The embassy is just a medium to bring in contact the related parties from both the countries. Moreover, this embassy has to devote most of its time in looking after the bizarre problems that the Nepali laborers in Malaysia are facing. The private sector has to be very keen on this. How has been the trade between the two countries so far? Now Malaysia has come up as a very important trading partner of Nepal. When we look at imports of the year 2001/2002, Malaysia came to be the third largest source of imports into Nepal. Imports from Malaysia into Nepal amounted to more than 64 million US dollar that year. Himalayan herbs, garments, handicraft products, etc., are what could be exported to Malaysia but the export base of Nepal has not become strong yet. How frequent are the personal and official trips between the two countries? Such visits are taking place time and often. In March this year around 60 representatives of tourism related businesses had come to Malaysia from Nepal. In about a year we have issued more than 5500 visas. If the country’s situation improves, there is a big possibility that many Malaysians would visit Nepal. Most of those who sought visas for Nepal were businesspersons. What important developments have taken place after Royal Nepalese Embassy was established in Malaysia? Especially we have to deal with the labor issues. We have been communicating with the Malaysian authorities to bring about procedural reforms so that the Nepali laborers here do not have to face different kinds of problems. We have been keeping records of the companies where our people are working and the troubles that they face there. We are compiling such records in monthly basis so as to be familiar with their woes and to help them promptly.  Our efforts have quite been fruitful. For a ‘framework agreement’ on this issue, we have already got the documents finalized. We have also been trying to promote tourism. Also, Nepal participated in the Commonwealth Tourism Conference that was held here some time back. The Malaysians are very positive about Nepal and this goodwill of our nation in Malaysia dates back to when the British Gurkhas had helped defend this country from external aggression. Even during insurgency period in Malaysia, the Nepali soldiers had worked side by side with the Malaysian soldiers. To capitalize on this goodwill, we will have still more to do and even other sectors have to assist the embassy. How can Nepali private sector tap Malaysian export/import market? We will have to explore the market in Malaysia to find out what we can supply to this market. At the same time we can use Malaysian technology, say for example, in herbs cultivation. Malaysians are interested in investing in Nepal but they will be looking for favorable conditions. So it is necessary for us to create a good environment for them. How do you assess the strengths and weaknesses of Nepali private sector to do that?    We have had no systematic approach as yet. The efforts of the Nepali businesspersons have not been that effective as they have not come to negotiate with the Malaysian counterparts in a team.  Also, there has not been any thorough study on the matter. The embassy is there to help in policy issues and the private sector has to be interactive on other aspects. What can Nepal learn from Malaysia? The people here are very hardworking. And they have been enjoying a very stable political environment. That’s what we have to have in our nation as well. We have also to realize that the power of private sector is immense when it comes to boosting the national economy.

Open up for international trade: Malaysia’s total two-way trade in 1994 was 120% of GNP and is maintained at almost the same level even now. Though Nepal’s present tariff level at around 16% on average matches that of Malaysia in mid-1990s (15%), Malaysia had almost no non-tariff barriers and foreign exchange control. However, Malaysia was open only in goods trade, not on the services till 2001 though the Eighth Plan envisaged opening up the service sectors gradually.

As some analysts have noted, those subsectors of Malaysian economy have grown faster in which the trade barriers are the lowest or non-existent (e.g. electronics which are described as the main engine of growth in Malaysian economy). This can be contrasted with the automotive sector which has been relatively sheltered from foreign competition by way of high tariff barriers and a number of incentives, but which has been unable to record substantial exports.

“We're promoting Malaysia also as a long-stay destination.” Cindy Lim Director, International Promotion Division, Malaysian Tourism Promotion Board, Ministry of  Tourism Cindy Lim Director, International Promotion Division, Malaysian Tourism Promotion Board, Ministry of Tourism How has the tourism industry in Malaysia evolved to the present state? Tourism in Malaysia has been progressing very well over the past few years. In a way Malaysia comparatively is a newcomer to tourism. The government recognised the importance of tourism as a potential contributor even in the old days and set up an organization called Tourism Development Corporation in 1972. At that time that agency was placed under the Ministry of International Tourism Industry. Looking at the success of the past limited campaigns, the Ministry Culture and Tourism was set up in 1987. We had about 5.5 million tourists coming in 1998 and 13.3 million in 2003. We just had a general election and a new government has been installed, which has placed even greater emphasis on tourism. The former Ministry of Culture, Arts and Tourism has been split into two separate ministries - one is the Ministry of Culture, Arts and Heritage and the other Ministry of Tourism. We hope that we will grow a lot more with this focus in tourism. The Ministry of Tourism has this agency – Tourism Malaysia – to do the promotional part of the country, both abroad and domestically. What are the major strengths of Malaysia for developing its tourism industry? We have been quite lucky because our country is a land of many charms. It is quite a small country by population, but we have a good mix of the cultures and the people of Asia. The Indians make up about 10% of the population, the Chinese 26% and the majority, of course, are the Malays who make up about 53%. But we have also a certain percentage of the other ethnic groups in the country. Some of them are the aboriginal tribes from the hinterlands of Sabah and Sarawak. So, that really gives us the idea of the cosmopolitan nature as well as much diversified multiracial pattern to our society. We also have Europeans, for example the Portuguese, the Dutch, the English. We all share and appreciate together our customs, traditions, values, etc. We learnt to live with our differences. So I think that is what makes Malaysia really very special. How do you go about the conservation of natural and cultural heritages that are important for tourism? This is on the national agenda. The government of Malaysia recognizes that we need to preserve our environment and national treasurers for the future generation. With the restructuring of the government we now have a Ministry of Natural Resources and Environment which will look at closer detail and scrutiny at these aspects of conservation and preservation. We have a lot of national parks, marine parks and all these are gazetted. They can not be just wantonly used for other purposes except for undisturbing activities. So, we are addressing more seriously the environmental and conservation issues. Even for development projects in the country, the government always insists on the economic impact analysis before any approval is given. Can you elaborate how Malaysia is going about on eco-tourism? We conducted an eco-tourism study a few years ago which has identified a few places throughout the country to be developed and promoted as eco-tourism sites. Nearly 30 such places have been listed for the purpose. The state of Sabah, Sarawak or the Island of Borneo are really rich in water falls, lakes and mountains. All these are very outstanding and very impressive. Two of these are enlisted in the UNESCO list of world heritage sites - the Bako National Park in Sarawak state and the Kinabalu National Park in the state of Sabah. Our rainforest is very ancient, more than 130 million years old. According to the geologists and scientists it is older than the jungles in Amazon. These forests are one of the last bastions of the world’s rarest plants and animals. Very cuddly little animals like Borneo are the attractions. We make use of the forest. A half an hour drive from Kuala Lumpur takes you to the wonders and beauty of a tropical rainforest. We have forest research institutes and so a lot of research is being made on the trees, herbs and the forest products as well as some very simple accommodation. Canopy walk is about experiencing what it is like walking between the trees about 800 metres up. The flowers, the orchid farms, all these are the places of interest as well as possible packages that can be organized to promote eco-tourism. What is Malaysia doing to attract tourists? We have been generally been promoting the food, the culture, the manifestation of different races and people in the country. For example, we have got the Chinese temples full of dragons and colours. We have got churches. Of course Islam is our main religion. We have many mosques. They carry architectural history. Apart from these, we are also looking at some new projects like students tourism. We are trying to encourage foreign students to come to Malaysian colleges and institutions of higher learning.  Sports tourism is promoted by all kinds of sporting activities. The F1 Grand Prix, for example, an international event, is very popular. We also organize boating and rafting. Wind-surf is yet another exciting event. We are trying to introduce Health Tourism. This has been very successful in reaching two types of target people. One is to fill up the hospital beds that are available in our private hospitals which are quite advanced. The hospitals here boast various latest treatment facilities that other countries in South East Asia lack. Coming here for dental treatment is very cheap. While you take a holiday here you could get treatments and go back slimmer, more beautiful and healthier. We are also promoting Malaysia as a long stay destination. It is a program that encourages the people to come for maybe 5 years. Through this program they are given the privilege of having multiple entry visas to come and go as one likes for 5 years and then it can be renewed. Can there be any strategic alliance between Nepal and Malaysia to set tourism programs like from the seashore of Johor to the top of the world? That’s really very creative of you. We always believe tourism develops a lot if that kind of alliance is set. Definitely there is a lot of room for us to work together and promote both the countries at the same time.

Have policy flexibility as well as stability: Nepal too may claim having policy flexibility citing the frequent changes in policy. But Malaysia’s policy flexibility has maintained inseparable link with the past while in case of Nepal there have been jerks and jumps.

When New Economic Policy (NEP) launched in Malaysia in 1974 expired in 1990, it was replaced by National Development Policy (NDP) as an add on document to the NEP, the objectives of which were not fully achieved in 1990. NDP worked as the framework for the Vision 2020 of the then Malaysian Prime Minister Dr. Mahathir Mohammad. As the new vision required 7% plus growth over the next 25 years, NDP relaxed many of the restrictions that NEP imposed on the economy and encouraged investment.

Other significant examples of policy flexibility is provided by the handling of the situation after the worldwide recession in 1981-82 which depressed the prices of Malaysia’s traditional commodity exports, and in mid-1990s when the Asian financial crisis threatened the survival of the economy.

After 1981-82 crisis, growth slackened and investment fell. The government thought to stimulate the economy through increased spending on a number of heavy industry and infrastructure projects. Much of such investment was financed through foreign borrowing. The long period of Malaysia’s rapid economic growth was halted abruptly in 1985-86. Per capita GNP fell from US $ 2000 in 1984 to $ 1,600 in 1986.

In response, the government was quick to alter its policies. Public spending and foreign borrowing were cut back. The ambitious growth and spending targets of the Fifth Plan (1986-90) were abandoned and massive privatization campaign was started.

Later when the notorious Asian financial crisis threatened massive capital flight, Malaysia under Dr. Mahathir was swift to change the policy and locked in the foreign capital till the crisis was over. For this, Malaysia brushed aside some of the important advices of International Monetary Fund. Though some trade barriers were raised on the wake of the Asian financial crisis, they were temporary. At the same time certain restrictions on foreign direct investment (FDI) were relaxed, again temporarily.

More recently, the Labour Minister was quoted saying that if investors find the labour cost in Malaysia expensive they should better search other countries to locate their production facilities. That means, the period when Malaysia was desperate for foreign investment is now about over. Hence the indication of imminent policy change.

The Malaysian experience also suggests the importance of policy stability. At the wake of the Asian financial crisis, Malaysia changed the floating exchange rate regime and reverted to fixed exchange rate regime pegging the Malaysian currency Ringgit to US dollar, the US being the largest export market. The exchange rate fixed then is still maintained: 3.8 Ringgits per US dollar. This gave the foreign investors the confidence on the economy, view the analysts. While this can be compared with the fixed exchange rate regime followed by Nepal which keeps the exchange rate of Nepali rupee with the Indian rupee fixed (as India is the largest trading partner of Nepal), it is doubted whether it has helped in gaining confidence of the foreign investors in Nepali economy.

Diversify: While Malaysia gained independence in 1957 it was a mainly agriculture based economy dominated by two commodities – rubber and tin. From 1965 to 1984, Malaysia experienced a period of broad diversification and sustained a rapid growth of 7% to 8% with per capita GNP reaching US $ 2000 in 1984. Palm oil, timber, cacao and pepper were added to Malaysia’s export crops. Petroleum sector expanded rapidly after 1980, making the country one of the major exporter of petroleum and liquefied petroleum gas.

While this diversification was the result of the opportunities opened up by the developments in the international field (e.g. the sudden increase in oil prices in late 1970s), it was achieved mainly through deliberate policy interventions by the government that carefully identified the prospective sectors and nurtured them to become competitive in the international market. 

Have political stability: Though everyone in Nepal can be heard harping on this theme, there are very few implementable suggestions for how to go about it. Malaysia established political stability through a meticulously planned and implemented New Economic Policy (NEP) launched in 1974 with the objective of reducing poverty by increasing income levels for all Malaysians and restructuring the Malaysian society in order to erase all racial identification in economic terms. NEP called for financial redistribution from the minority and wealthy of non-Bhumiputra (i.e. non-native Malaysian) racial groups to Bhumiputras. The target was to achieve corporate equity of 30% Bhumiputras, 30% foreigners and 40% other Malaysians. It was planned to be achieved through an expanding economy so that no racial group would have to suffer from economic or social deprivation. Some analysts say that NEP was designed to achieve social rather than economic objectives and it succeeded in that. It helped achieve political stability by avoiding racial turmoil and establishing racial harmony instead.

Be selective: One important characteristic of the Malaysian leadership is to be selective. As evidenced by the rejection of IMF’s offer for help during the Asian financial crisis and quota for racial groups in various spheres of the society, Malaysia has tried some new methods to manage its country by selecting policies, generally avoided by the other countries. One is the entrepreneurship ministry. Though it seems like the Ministry of International Trade and Investment (MITI) in Japan, it goes beyond the methods of MITI in developing new entrepreneurs. In most countries, including Nepal, the entrepreneurship development is entrusted to a training institution, with the role of the government ministry limited to budget sanctioning and sending representative at the policymaking body of the institution.

Another example of being selective is provided by the policy to invite foreign direct investment in Export Processing Zones (EPZs). While most of the countries do not care that much about the level of investment by a unit in the EPZ, Malaysia followed the policy of providing special incentives for units in EPZ that invest more than US $ 500 million. However, such units are required to export 100% of their produce.

Also the practice of handling labour problems is unconventional for a democratic country. The Internal Security Act is so strong that it empowers the government to put behind bars the striking labourers on the charge of disturbing the national security. The result is that the labourers resort to their protest activities only after the working hours in the factories.

Invest in social sector: Malaysia's economic miracle is also attributed to combining educational investment with health expenditure and employment creation. Virtually all Malaysian children attend primary school and well over 50% attend secondary school. The educated people, trained in requisite skills of the modern businesses have contributed not only to attract foreign investment but also for overall economic development of the country.

Go for regional integration: In order to develop its hinterlands, Malaysia has taken steps to form Growth Triangle with neighbouring countries Thailand and Indonesia so that the adjacent regions of the three countries develop by complementing each other's resources and requirements. For this, the national level rules are modified for these areas that fall under the triangle. Again an example of policy flexibility.

Other Lessons from Asian Financial Crisis

It was not only the control on foreign exchange rate that the Malaysian government controlled on the wake of the Asian financial crisis. They also controlled the interest rate. In fact, the fixed exchange rate system made it easier for them to control the interest rate at the level they wanted it to remain. This provided further confidence in the economy. Similarly, they were able to control also the inflation, a feat for which the country’s central bank has been appreciated all along.

Malaysia & Tourism

While in Nepal, tourism started on its own and both government and the private sector followed it looking at the opportunities it offered, in Malaysia it was the deliberate policy interventions that created and developed this industry.

While, the country has very developed various types of tourism attractions – nature tourism, sports tourism and health tourism – it has also a package for long term stay. It encourages wealthy foreigners to come and stay in Malaysia for five years.  

One very important step by Malaysian government in tourism development is the tax incentives to encourage domestic tourism. For attracting foreign tourists it is conducting various campaigns in targeted markets. Recently, they have started this campaign also in Nepal. And the packages are as cheap as costing Rs. 50,000.